Market Report Commentary

C.A.R.’s 2017 California Housing Market Forecast

Home sales expected to edge up slightly in 2017, while prices post slowest gain in six years
Following a dip in home sales in 2016, California’s housing market will post a nominal increase in 2017, as...

WAITING FOR THE "SOME"
Nov 4, 2016 -- How much more positive economic data will it take for the Fed to make a change and lift short-term interest rates? According to the statement that accompanied the close of this week's...

As with any major purchase, it pays to be informed prior to making any decisions. As experienced buyers already know, buying a home is a complicated process, so it's important to start at the beginning and...

Year-Over-Year
Median home prices increased by 8.4% year-over-year to $655,000 from $604,375.
The average home sales price rose by 11.5% year-over-year to $922,807 from $827,747.
Home sales rose by 14.9%...

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C.A.R.’s 2017 California Housing Market Forecast

Home sales expected to edge up slightly in 2017, while prices post slowest gain in six years

Following a dip in home sales in 2016, California’s housing market will post a nominal increase in 2017, as supply shortages and affordability constraints hamper market activity, according to the "2017 California Housing Market Forecast," released today by the CALIFORNIA ASSOCIATION OF REALTORS ®’ (C.A.R.) .

The C.A.R. forecast sees a modest increase in existing home sales of 1.4 percent next year to reach 413,000 units, up slightly from the projected 2016 sales figure of 407,300 homes sold. Sales in 2016 also will be virtually flat at 407,300 existing, single-family home sales, compared with the 408,800 pace of homes sold in 2015.

"Next year, California’s housing market will be driven by tight housing supplies and the lowest housing affordability in six years," said C.A.R. President Pat "Ziggy" Zicarelli. "The market will experience regional differences, with more affordable areas, such as the Inland Empire and Central Valley, outperforming the urban coastal centers, where high home prices and a limited availability of homes on the market will hamper sales. As a result, the Southern California and Central Valley regions will see moderate sales increases, while the San Francisco Bay Area will experience a decline as home buyers migrate to peripheral cities with more affordable options."

C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.2 percent in 2017, after a projected gain of 1.5 percent in 2016. With California’s nonfarm job growth at 1.6 percent, down from a projected 2.3 percent in 2016, the state’s unemployment rate will reach 5.3 percent in 2017, compared with 5.5 percent in 2016 and 6.2 percent in 2015.

The average for 30-year, fixed mortgage interest rates will rise only slightly to 4.0 percent in 2017, up from 3.6 percent in 2016, but will still remain at historically low levels.

The California median home price is forecast to increase 4.3 percent to $525,600 in 2017, following a projected 6.2 percent increase in 2016 to $503,900, representing the slowest rate of price appreciation in six years.

"With the California economy continuing to outperform the nation, the demand for housing will remain robust even with supply and affordability constraints still very much in evidence. The net result will be California’s housing market posting a modest increase in 2017," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. "The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity."

Mortgage Rate Outlook

WAITING FOR THE "SOME"

Nov 4, 2016 -- How much more positive economic data will it take for the Fed to make a change and lift short-term interest rates? According to the statement that accompanied the close of this week's meeting of the Federal Reserve Open Market Committee, it will wait until it sees "some further evidence of continued progress toward its objectives."

Of course, "some" is a rather vague amount, unquantifiable, and certainly leaves the Fed plenty of wiggle room to leave interest rates unchanged if economic growth or inflation trends don't continue along their present path. The Fed obviously couldn't bring itself to use a more specific term about the potential near-term direction of monetary policy, as they did last October, when they plainly said they would assess "whether it will be appropriate to raise the target range at its next meeting". The use of "some" as it pertains to further evidence doesn't commit to any time frame or specific goal, so it still remains unclear whether or not a change will actually come.

Last October's statement almost explicitly told the market to prepare for an imminent rate increase; this statement remains non-committal. In fact, one fewer vote to raise rates immediately was tallied this week when compared with September's outcome, so it might even be that the Fed is somewhat more undecided now than then. Currently, futures markets put about 72 percent chance of a change to the federal funds rate in December.

We'll now have a six-week period evaluating whether or not each key piece of economic data is strong enough to be considered "some further evidence", never knowing if even a somewhat weaker item is still good enough.

To sum it all up (pun intended), we have only "some" clarity as to the Fed's thinking about making a move. To be sure, a small move by the Fed (when or if it comes) won't have any great effect on long-term mortgage rates, so there's nothing to fear for potential homeowners or those still looking for their best opportunity to refinance.

By all indications, the little rise in mortgage rates noted by Freddie Mac this week seems to have petered out (last week we called for a 6-8 basis point increase; Freddie reported 7bps. Nailed it.) Next week features a lighter slate of economic data, and it looks as though rates underpinning mortgages have softened a bit. We think that the 30-year FRM as reported by Freddie Mac will show a 2-3 basis point decline by the time the next MarketTrends is written.

Are You Ready To Buy?

As with any major purchase, it pays to be informed prior to making any decisions. As experienced buyers already know, buying a home is a complicated process, so it's important to start at the beginning and thoroughly understand each step. Whether you're buying your first home or your third, make sure you have the necessary financial resources and have explored all your options before you purchase a new home.

If you're a first-time buyer, you should weigh the pros and cons of homeownership versus renting. There are many advantages and disadvantages to consider. For example, renters have the freedom of mobility if they choose to move, but their monthly rent checks do not establish long-term equity or produce any other benefits. And while homeowners' mortgage payments accumulate equity, these payments are generally higher than rent payments and come with the responsibility to manage the care and upkeep of the property.

Both new and experienced buyers have their own sets of financial considerations when it comes to buying a home. Move-up buyers should evaluate their financial situation to ensure they're prepared to meet the higher mortgage payments involved with relocating. Likewise, first-time buyers should determine if monthly mortgage payments fit in their budgets. In addition, you'll need to be prepared to cover the downpayment and closing costs. And, you should consider whether you meet the basic criteria to qualify for a mortgage; lenders prefer that applicants offer a stable job history and a good credit record.

North County Coastal Stats At A Glance

Year-Over-Year

Median home prices increased by 8.4% year-over-year to $655,000 from $604,375.

The average home sales price rose by 11.5% year-over-year to $922,807 from $827,747.